The Financial Toll of Last Time Buys on OEMsBy Logan Wamsley
Last time buys will always be the central concern of every successful obsolescence management strategy. BOM monitoring gives OEMs the tools needed to stay ahead of obsolescence, proper long-term storage infrastructure gives them the means to maintain end-of-life inventory post-obsolescence, and the implementation of die and wafer banking into their product designs allows them to — to an extent — bypass obsolescence entirely.
But as multifaceted as an obsolescence management strategy can be, every move an OEM makes to alter and streamline their supply chain comes down to mitigating the effect of last time buys — largely because no other action has such a drastic effect on a manufacturer’s budget.
Working Capital is King
Working capital is the lifeblood of any equipment manufacturer. It grants them the ability to bring a product from the conceptual stage into consumers’ daily routines, but it is also what allows them to continually improve on their designs, introduce new innovations to the marketplace, hire new employees, and even test new industries.
But working capital is not an unlimited resource. With profit margins narrowing each passing year (in the case of EMS providers, margins can be as narrow as 5 percent), manufacturers must explicitly dictate their budgets years in advance — under the assumption that the variables associated with their product’s life cycle remain consistent and predictable. Such variables include consumer demand, market stability, and, of course, regular OCM fulfillment of the critical electronic components necessary for the product’s assembly.
None of these variables, however, can be relied on with absolute certainty, and too often OEM supply chains are not prepared to handle significant deviation from their initial projections. In the event an OCM partner issues a product change notification (PCN) for a critical component, OEMs are left with four primary options: discontinue the product, find an alternative electronic component (often at significantly higher cost), redesign the product, or initiate a last time buy to complete the projected life cycle of their product. Of these, a last time buy transaction is typically the preferred option — but this means sacrificing working capital that wasn’t intended to be spent five, seven, or (as often is the case in healthcare and aerospace industries known for extended product life cycles) even 10 years later.
Partstat Will Purchase LTB Inventory on Your Behalf
The Last Time Buy Solution at Partstat has found a way to offer OEMs something better. Instead of customers producing up to 10 years of working capital upfront, Partstat will purchase all necessary LTB inventory on the customer’s behalf. Then, on a schedule determined by the customer, we will distribute it anywhere in the world as needed. If the LTB inventory needs to be stored and carefully distributed over a 10-year period, then that equates to 10 years’ worth of working capital the customer can keep on record. How exactly they use that newfound financial flexibility is up to them, but making that decision is infinitely preferable to having hundreds of thousands of dollars in company assets locked away in critical component inventory that may not be needed for years.
Our Last Time Buy Solution also gives customers the added benefit of significantly reduced carrying costs, all but eliminating the final burden OEMs associate with high levels of LTB inventory. Not only does Partstat have access to multiple warehouse facilities throughout Europe and the APAC region capable of fulfilling inventory anywhere in the world, but our ISO 9001-2008 and AS9120-certified storage and fulfillment infrastructure has been proven to save customers an average of 42 percent on inventory carrying costs.
Last Time Buy transactions have long been a necessary evil for equipment manufacturers who wish to continue supporting the quality products consumers expect from them. But times are changing, and Partstat is offering customers a new way to think about their obsolescence management strategy.
If you would like to learn more, one of our dedicated supply chain strategists would love to speak with you!